The U.S. Federal Reserve is about to give a huge boost to gold prices, and the first push could come as soon as next week.
The parade of dismal economic reports both here and abroad has stoked hopes that more stimulus, in the form of a third round of quantitative easing, is imminent. A clear signal of when we can expect QE3 could come at next week's two-day Federal Open Market Committee (FOMC) meeting that starts July 31.
An increasing number of Federal Reserve officials are convinced the central bank must expand its stimulus operation immediately amid the recent spate of glum data signaling economic growth has hit a roadblock. Several members will push for urgent action, although some may move to delay a decision until September.
Fed Chairman Ben Bernanke told Congress last week that a fresh round of quantitative easing is an option the FOMC is mulling to try and lower the elevated unemployment level.
"We are committed to ensuring, or at least doing all we can to ensure, that we continue to make progress on unemployment," Bernanke said just last week.
Central Banks Boost Gold Prices
Most agree that QE3 will be the most effective measure in jump-starting the struggling U.S. economy. QE3, in which the Fed will buy financial assets to inject money into the economy, will also be very bullish for gold prices.
More dollars in circulation raises the risk of inflation and devalues the greenback. Gold has long been coveted as a tangible asset against inflation, and will become more attractive compared to the weakening dollar.
The United States isn't the only economy helping gold prices. The European Central Bank on Thursday sent the strongest signal to date that it's willing to use its power to print money and preserve the euro. Investors took the news as a sign the bank will engage in massive purchases in the region's bond market to monetize the ailing Eurozone economy – i.e., flood the area with money.
"The ECB is ready to do whatever it takes to preserve the euro," said ECB president Mario Draghi.
That comment prompted Peter Schiff of Euro Pacific Capital to predict that gold prices would soon soar to all-time highs.
Schiff told King World News that the ECB statement means the bank is ready to print euros, which will propel gold prices higher.
Schiff is surprised that gold hasn't rallied even further in light of all the global turmoil, but nonetheless is enamored by gold's trend line.
"If gold breaks above the $1,650 level with conviction, then I think we are looking at a retest of the all-time highs from late summer of 2011. And nobody is really anticipating that because these gold stocks are priced for a collapse in the price of gold, not a return to the highs," Schiff told King World News.
"I think ultimately we take out the highs and we go a lot higher. At some point, if I'm right, these gold stocks are going to take off because they have a lot of catching up to do," Schiff added.
As hopes run high that more stimulus is coming, gold prices staged their best week since June, gaining some $60 an ounce.
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